What is corporate venturing, and why is it considered the holistic model of innovation?
March 23, 2023
A quick Google search for the term Corporate Venturing (CV) yields the first 3 articles dedicated to this concept, written between 2012 and 2013. The first one talks about the diversification of the current business and the other about corporate venture building (CVB) and venture capital (CVC). This already reveals to us the purpose for which the phrase is being used.
In any case, it has had an uneven evolution and nowadays, we read many definitions, which I would not say are contradictory, but can seem incomplete. Corporate Venturing is defined as the set of corporate innovation initiatives/tools that involve inherent risk and seek to diversify and/or improve the corporation’s core business. Currently, it is the best way for corporations to get out of their comfort zone (competing/working with startups) and put to good use all the capabilities they have amassed over the years.
Corporate venture Vs Innovation
There is a narrow line that separates corporate innovation from Corporate Venturing, for example, an intrapreneurship program that only seeks to train employees would be a corporate innovation tool, but it would only be CV if the final objective of the program is to launch a new business (either inside or outside the company).
Objectives of corporate venturing
The main objective is clear, to impact the business at different levels (top and bottom line), with different time horizons (short, medium, and long term), and through different tools (R&D, M&A, venture client, CVB etc…).
Other underlying goals include safeguarding the core against rivalry and expanding into new markets and customers.
This is why it is so important to design a good Corporate Venturing strategy because there are many options, and although they are not exclusive per sé, at the end of the day, there are always restrictions on budget, capabilities, and focus. The key in any strategy is to take advantage of the capabilities and competitive advantages that the organization enjoys (customers, IP&tech, know-how and who, brand, etc.).
Types of Corporate Venturing
As we have already glimpsed, there are a multitude of initiatives that must be combined to obtain the most complete results, as this is the best way to squeeze both their characteristics and the competitive advantages of the corporation. Along this article we are going to analyze all of them from the corporate perspective, but it is important to bear in mind that in almost all of these models there are external experts who can help the execution of these initiatives by sharing risks and opportunities.
To describe them, we will start with those that are closer to the core and then those that should attack more distant horizons.
Internal initiatives close to the core
The initiatives to be implemented most frequently are those that are close to the core. Let’s take a look at them:
- R&D – This is internal innovation, as it is implemented by the company’s technical team, but is part of Corporate Venturing, as there is an intention to create a new (and uncertain) product/technology/process that enhances the capabilities of the organization.
- Acceleration – I don’t believe much in this initiative because it lacks impact, it has historically been one of the most widely used because of its simplicity and cost. It consists of helping a startup to grow through mentoring support and/or space in exchange for equity. A good startup does not need help or equity.
Initiatives integrating actors outside the corporation
- Venture Client – The evolution of acceleration. The goal is for the corporation to become the startup’s client by executing a pilot. Here there is an increase in value on both sides, as the startup gets an important customer and the corporation solves a challenge by testing a new technology or offering a new service to its customers.
- Corporate Venture Capital – Refers to investment in startups. There are several investment theses depending on whether the interest is strategic (control or not) or financial (subsequent return).
- M&A – Buying a startup can be a consequence of the investment through the CVC. You can integrate it or let it fly free, depending on whether the interest is business or financial. There is a lot of risk in these operations because you can have problems integrating it if the size is large and the culture is very different. They are usually high-cost acquisitions, and you have to have a well-defined plan so that the corporation can take strategic advantage of this acquisition.
- Intrapreneurship – As mentioned above, it depends on the ultimate goal of the program, whether it is a VC or a simple corporate innovation initiative. The one we are interested in is that it provides employees with resources, training and support to create new ventures within the corporation (they do not have to leave the corporation and consolidate as a new business unit).
Initiatives that attack horizons further away from the corporate core
- Corporate Venture Building – This is the creation of new ventures that, leveraged on the competitive advantages that the corporation can provide (IP&tech, clients, capillarity, know-how, brand, etc.), increases the chances of success of this new venture and allows the corporate to diversify its current business. This model brings freedom and provides both business benefits (Venture Client, Intra) and purely financial benefits (M&A, CVC).
- Every corporation should already have a Corporate Venturing department or at least employees in this area. Every minute they don’t, they are giving their competitors (corporate, startups) a head start and are wasting their acquired advantages.
- Due to the complexity of the tools/models that can be used, it is necessary to design a strategy that fits the corporate resources, ambitions and capacities.
In short, innovating is not an epic mission; all that is needed is a solvent structure that arises from understanding the challenges and objectives of innovation within the corporation in order to prioritize the initiatives that respond to them.